TaxTMI 
TaxTMI 
2024 (4) TMI 595
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....47/8E/79/81-82 dated 30.09.1989. The Ld. A.R submitted that the assessee derived income from membership, advertisement, contractual receipts, publication of journals /directories etc. The Ld. A. R further submitted that the interest earned on the deposits along with other income was applied for general public utility. The Ld. A.R submitted that the provisions of section 2(15) of the Act states that charitable purpose of relief to poor, education, medical relief, preservation of environment, preservation of monuments or places or object of artistic or historic interest and the advancement of any other object of general public utility provided that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of any activity in nature of trade, commerce or business for a cess or fee or any other consideration. The Ld. A.R submitted that the main object of the assessee relates to foundry industry for taking up of various activities for achieving the basic objects. Thus the said activity is covered under any other object of general public utility. The AO has rejected the contentions of assessee on the ground that the acti....
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....of contributions from the head office, membership fee, income from publication of Indian Foundry journal , other grants and donations etc. besides receiving interest on fixed deposits . We find that undoubtedly the assessee's main object is general public utility which is clearly covered u/s. 2(15) of the Act however the receipts from the said activity is more than 10 lakh and now the issue before us where surplus generated from the said activity is meager so that it does not fall within the ambit of proviso to Section 2(15) of the Act. We note that profit on the receipts is very meager and therefore the decision of Coordinate Bench in the case of Indian Chamber of Commerce (supra) is clearly applicable. The operative part is reproduced herein below: 13. After hearing the rival contentions and perusing the material on record, we note that the ICC is non-profit making company registered u/s. 25 of the Companies Act, 1956 the main object of the assessee is to promote and protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or associated with. We further find that the ICC with main object of promo....
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.... exemption u/s. 11 of the Act. In order to better understand the provisions section 2(15) of Act as applicable at relevant point of time, the same is reproduced as under: 15) "charitable purpose" includes relief of the poor, education, [yoga,]medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: [Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty- five lakh rupees or less in the previous year," 13.1. A perusal of the above reveals that the ....
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....for trade, commerce and industries. So that the interest of trade, commerce and industries are promoted and protected. The AO treated the receipts from organizing meetings, conferences and seminars as business activity whereas the Ld. CIT(A) treated the entire receipts of the ICC as business income by following the decision of Hon'ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra) which too appears to be in correct. 14. We have minutely perused the decision of Hon'ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra) and observed that the Hon'ble Apex Court has nowhere held that the activities carried on by the charitable entity which are supportive to the attainment of main object are to be treated as noncharitable activities. The Hon'ble Court has even held that activities of charging of any amounts towards consideration for any activity (advancing general public utility) which is on cost basis or nominally above cost, cannot be considered to be trade, commerce or business or any services in relation thereto in Para 253 page 82. The Hon'ble Court has held as under: "A.3. Generally, the charging of ....
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....e cost of holding such events. So much so that the administrative and other incidental expenses of holding and organizing such seminars, conferences and meetings are met out of other charitable income received form interest on FDRs, rental and miscellaneous income. Therefore we find force in the contentions of the Ld. AR that the decision of Hon'ble Apex Court has wrongly been interpreted and applied against the assessee. In our opinion, the decision is squarely applicable to the facts of the case and in view of that the ICC is entitled to exemption u/s. 11 of the Act as the activities of the advancement of main object is not hit by the proviso to Section 2(15) of the Act even post amendments. 16. We also note that the assessee's case is squarely covered in its own case by the decision of Hon'ble Bench in ITA No. 1284/kol/2012 for A.Y. 2009-10 wherein the issue was decided by the coordinate bench in favour of the assessee and the revenue has not preferred any appeal against the decision of Co-ordinate Bench before the Hon'ble High Court and the issue has attained finality. The operative part of the decision in ITA No. 1284/Kol/ 2012 is extracted as under: "32. We ....
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....c utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim when made in respect of an activity carried out on commercial lines is contrary to the intention of the proviso. With a view to limiting the scope of the phrase "advancement of any other object of general public utility", it is proposed to amend section 2(15) so as to provide that "the advancement of any other object of general public utility" shall not a charitable purpose if it involves the carrying on of following activities: (a) Any activity in the nature of trade, commerce or business or, (b) Any activity or rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity." Further CBDT explained this proviso vide its Circular No. 11 of 2008, dt. 19th Dec., 2008 (2009) 308 ITR (St) 5 on the issue which reads as under: "CBDT Circular No. 11/2008 19th December, 2008 Subject:- Definition of 'Charitable purpose' under section 2(15) of the Income Ta....
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....inment of the objectives of the entity, and ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief' would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e, the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax u/s. 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general ....
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....ion such entities which were engaged in commercial activities. Here, we need to appreciate the concept of an "entity engaged in commercial activities". In very simple words, any entity whose main or dominant object is commercial can only be said to be a commercial entity. An entity whose main purpose is undoubtedly charitable in nature without an iota of commerciality in it cannot be said to be engaged in commercial activity. Also we need to note that another point that emerges from the above is that whether an entity is carrying on an activity in the nature of trade, commerce or business always remains a question of fact which will have to be determined on the basis of the facts of the individual case. No generalization for such determination is possible. In view of the above, it is seen that the proviso can be applied to fact based on the facts and the past history of the assessee, which is discussed in detail above. From the above facts, we are clear that the assessee has never been dominantly engaged in any commercial activities and is a Charitable Institution registered as such u/s. 12A of the Act, set up for the promotion and protection of Indian business and industry. The ma....
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....acture" and "adventure or concern in the nature of trade, commerce and manufacture". The term "business" has been explained by various judicial decisions and the landmark decision of the Hon'ble Supreme Court of India in the case of CST v. Sai Publication Fund [2002] 258 ITR 70 interpreted the word 'business' under section 2(5- A) of the Bombay Sales Tax Act, 1959 as follows:- "... No doubt, the definition of "business" given in Section 2(5-A) of the Act even without profit motive is wide enough to include any trade, commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture and any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not business, then any transaction incidental or ancillary would not normally amount to "business" unless an independent intention to carry on "business" in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on "business" connected with or incidental or ancillary sales will rest on the Department. Thus, if the ....
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....activities of sales are not 'business' and the onus of proof of an independent intention to do 'business' in these connected, incidental and ancillary sales will rest on the department. If, for example, these connected, incidental or ancillary transactions are so large as to render the main activity infinitesimal or very small, then of course the case would fall under the first category referred to earlier." (emphasis supplied." Further, Hon'ble Supreme Court in this very same case held as under: "... ... This decision is directly on the point supporting the case of the respondent after noticing number of decisions on the point including the decisions cited by the learned counsel before us. It may be stated that the question of profit motive or no-profit motive would be relevant only where a person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce etc. On the facts and in the circumstances of the present case irrespective of the profit motive, it could not be said that the Trust either was "dealer" or was carrying on trade, commerce etc. The Trust is not carrying on trade, commerce etc., n the sense of occupation to be a "de....
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.... carried out for profit, would not mitigate or change the "charitable" character of the institution. Thus in the cases of many professional institution whose main activity is not "business", the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct 'business' in these connected, incidental or ancillary activities is established by the revenue. The test, therefore, to be applied is whether the activity which is pursued is ancillary to a dominant object or is independent to the main object and forms a separate object in itself. The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. 35. In view of the above, we thus now turn to examine and analyse in full details the particular f....
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....is engaged in "business, trade or commerce" or in any "service in relation to business, trade or commerce." The individual nature and purpose of the specific activities, it is stated that the activities held by AO and the (A) to be business in nature, were as follows: (a) Meetings, Conferences & Seminars (b) Environment Management Centre (c ) Fees for Certificate of origin Facts relating to these activities are discussed in detail in para 23 to 25 of this order above, which need not be repeated. 36. From facts in entirety, now the question arises is whether principle of consistency will apply or not? From AY 1985-86 to 2007-08 exemption u/s. 11 of the Act was allowed. Now, having extensively with the newly amended section 2(15) of the Act and its absolute inapplicability to the case of assessee supported by various judicial decisions, we will discuss this issue. We find that CIT(A) without appreciating that the basis principle underlying the definition of "charitable purpose" remained unaltered, and on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, whereby the restrictive first proviso was inserted therein, lower authoritie....
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....use (ii) shall operate to exempt from the provisions of this Act part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public." The adding of the words "not involving the carrying on of any activity for profit: was introduced by the Income tax Act, 1961. Hon'ble Apex court in the earliest decision in the case of Surat Art Silk Cloth Manufacturers Association (Supra) held the theory of dominant or primary object of the trust to be the determining factor so as to take the carrying on of the business activity merely ancillary or incidental to the main object. It was held as follows:- (i) That the dominant or primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth a set out in clause (a) and the objects specified in clauses (b) to (e) were merely powers incidental to the carrying out of that dominant and primary purpose; (ii) That the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., was an object of public utility not involving ....
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.... purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital." Thus from all the above it is seen that though the definition of "charitable" purpose under section 2(15) has undergone changes, the principle underlying the same has remained the same. In context of the above, with regard to the "principle of consistency" it would be of relevance here to quote the decision of the Apex Court in the case of RadhasoamiSatsang v. Commissioner of Income-tax (193 ITR 321 SC) wherein it was held that: ".... (ii) That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened. Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed t....
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....the various judicial decisions through the years, interpreting the definition of "charitable purpose" as laid out in section 2(15) of the Act and also the definition of "business" in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was "charitable" in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be "charitable" in nature. Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view the basic principle underlying the definition of "charitable purpose" remained unaltered even on amendment in the section 2....
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....13] 350 ITR 509 (SC), the aforesaid triple test was applied. It was reiterated that the principle of mutuality envisages: i) Complete identity between the contributors and participators; ii) Action of the participators and contributors must be in furtherance of the mandate of the associations or the clubs. The mandate of the Club is a question of fact which has to be determined form the Memorandum of Articles of Associations, Rules of Membership, Rules of the Organizations, etc. which must be construed broadly. iii) There must be no scope for profiteering by the contributors from a fund made by them which could only be expended or returned to themselves." 18.1. Similarly the decision of Hon'ble Delhi High Court in the case of CIT vs. Deloitte Touche Tohmastu (supra) has held as under: "10. All three tests of mutuality having been satisfied as aforesaid, we are of the considered view that the receipts of the respondent/assessee wherein from its members were not in the nature of fees for technical services and that the same were exempt from tax having regard to the principle of mutuality." 18.2. Therefore if the membership fee/ an....
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....udicial forums , we set aside the order of ld CIT(A) and direct the AO to allow exemption u/s. 11 of the Act in respect of entire receipts/income. Consequently ,the grounds no. 1to 5 are allowed. 21. Issue raised in ground no. 6 and 7 is against the order of Ld. CIT(A) not allowing the depreciation of Rs. 16,20,365/- as claimed by the assessee thereby upholding the assessment order. 22. Facts in brief are that the assessee has claimed depreciation of Rs. 16,20,365/- in AY 2013-14 and Rs. 18,43,085/- in AY 2014-15 as application of income. The AO as well as Ld. CIT(A) has not allowed the deduction of the said depreciation as an expense to be deducted from the gross receipts for the purposes of calculating the income available for application. 23. After hearing the rival contentions and perusing the material on record, we find that the assessee's case is squarely covered by the decision of Hon'ble Apex Court in the case of CIT vs. Rajashthan and Gujrati Charitable Foundation [2018] 402 ITR 441 (SC) in the context of amendment in Section 11(6) of the Act by the Finance (NO.2) Act 2014 w.e.f 01.04.2015 wherein it has been held that up to AY 2015-16 the assess....
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....e sales consideration for the purpose of calculation of capital gain in the instant year which according to the AO would amount to double deduction. 27. The Ld. CIT(A) affirmed the order on this issue by holding that there is no opening WDV for this year. 28. After hearing the rival contentions and perusing the material on record, we find that up to AY 2015-16 even if fixed asset purchased by the assessee was claimed as application of income while computing the income, even then it is presumed that WDV is there in the books of account. We have even perused the provisions of Section 11(1)(a) of the Act which provide that if the sale consideration received on sale of assets is utilized for acquiring another asset then the same is treated as having applied for the charitable purposes. The case of the assessee also find support from the decision of Hon'ble Apex Court in the case of CIT vs. CIT vs. Rajashthan and Gujrati Charitable Foundation (supra) wherein it was held that besides claiming the full deduction of cost of fixed asset in the year and the assessee would be entitled to depreciation thereon. By considering the ratio laid down in the said decision, we are of....
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....cumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down in section 11(2) are fulfilled. The contention that the investment as contemplated by section 11(2)(b) must be investment of all accumulated income in the Government securities, etc., namely, 100 per cent of the accumulated income and not only 75 per cent thereof and if that is not done then, only the invested accumulated income to the extent of 75 per cent will get excluded from income-tax assessment, the remaining 25 per cent of the accumulated income will not earn such exemption, could not be accepted. Section 11(1)(a) operates on its own. By its operation two types of income earned by the trust during the previous year from its properties are given exemption from income-tax(i) that part of the income of the previous year which is actually spent for charitable or religious purposes in that year, and (ii) out of the unspent accumulated income of the previous year 25 per cent of such total property income or Rs. 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such ....
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....on 11(1)(a) has full play and if still any accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income-tax exemption section 11(2) can be pressed in service and if it is complied with then such additional accumulated income beyond 25 per cent or Rs. 10,000, whichever is higher, can also earn exemption from income-tax on compliance with the conditions laid down by section 11(2). It is true that section 11(2) has not clearly mentioned the extent of the accumulated income which is to be invested. But on a conjoint reading of the aforesaid two provisions of sections 11(1) and 11(2) this is the only result which can follow. Therefore, if the entire income received by a trust is spent for charitable purposes in India, then it will not be taxable but if there is a saving, i.e., to say an accumulation of 25 per cent or Rs. 10,000, whichever is higher, it will not be included in the taxable income, section 11(2) further liberalizes and enlarges the exemption. A combined reading of both the provisions would clearly show that section 11(2) while enlarging the scope of exemption removes the restriction imposed by section 11(1)(a) but it does ....